Home BUSINESS How To Prepare For a Recession In 2023

How To Prepare For a Recession In 2023

prepare for a recession

Best Ways to Prepare for a Recession will be discussed in this article. “Street fight style is irrelevant because there are no rules to a street fight; anything goes.” Dr. Boyd explained that “to be prepared for a street fight, one needs to be flexible in order to properly respond to whatever you might encounter. The only way to be flexible is to be fully prepared to deal with whatever comes your way.”The same principle applies to a recession. The impact can hit your business hard; from different angles, and in unpredictable ways.

However, there are something you can do to remain flexible and plan for different outcomes. This guide covers five of the most important things, along with exercises, action steps, and examples.

  • Simplify your business model and double down on what’s working
  • Assess your spending and improve your cost structure
  • Elevate your customer relationships to the next level and build brand loyalty
  • Diversify your business offerings to align with consumer demand
  • Activate a fail-safe plan to motivate and reward your top-performing team members

1. Simplify your business model and double down on what’s working

Simplify your business model and double down on what’s working

The first step is to take a close look at your current financial state and identify what activities are driving the most growth. Think 80/20 Rule. Pareto Principle: 20 percent of your efforts account for 80 percent of your results. By focusing on the 20% of your activities driving growth, and shifting away from other activities that are not getting you big wins, you can redistribute resources to prioritize the core revenue-generating activities. This is where small businesses have an advantage. While larger companies have more resources, smaller businesses can pivot faster and make bigger changes. To identify your top-performing activities, you’ll need to examine your data to see where your sales/revenue is coming from.

Then, for core activities and processes that are generating the most value, explore how you can make them better—including what technologies and tools you can use to perform the activity faster and cheaper without sacrificing quality. This will lower the cost structure and increase your bottom line.

Try this basic exercise to get a jumpstart:

FYI: The below exercise requires pulling your business data into a spreadsheet. If you’re not currently tracking expenses and revenue, you can use top-rated tools such as FreshBooks or QuickBooks. If you have minimal expenses and most of your purchases are made using credit cards or a checking account, you can use your bank’s online tools to export all of these into multiple spreadsheets and combine them manually. If you don’t want to do any of this, hire an accountant to help you get a tracking and reporting system in place.

Open a blank spreadsheet and add a column titled “Revenue Generating Activity.” In this column, list all activities with a cash flow (products, services, business offerings, etc.). For each activity, populate the following metrics:

  • Average Monthly Revenue
  • Average Monthly Cost
  • Average Monthly Net Gain (revenue – cost)

Next, add the following columns:

  • Action (Should this activity be eliminated? Should this activity be put on hold?)
  • Improvement Opportunity (Is there an opportunity for automation? Are there other opportunities for improvement?)
  • Notes (Use this to describe how you can perform this activity better, faster, and/or cheaper)
  • Revenue Generating Activity
  • Now, sort the “Revenue Generating Activity” column by “Average Monthly Net Gain” (largest to smallest).
  • Based on each activity’s respective value, go through each row and determine whether it can be eliminated, paused, or improved.
  • Try focusing on improving the top activities with the highest net gains. Consider eliminating any activities not producing revenue and putting those generating minimal revenue on hold.

2. Assess your spending and improve your cost structure

Assess your spending and improve your cost structure

Next, get a consolidated view of your remaining costs. If you look at your spending in one view, you’ll find further opportunities to eliminate or reduce costs. This includes examining costs associated with the activities you decided to keep in tip one, plus other costs of running your business that do not relate to a specific revenue-generating activity (e.g., legal costs, supplies, website, etc.).

Try this basic exercise to get a jumpstart:

  • Open a new spreadsheet or tab and add columns titled “Expense Item” and “Average Monthly Cost.”
  • In these columns, list all expenses you expect to incur and the respective monthly cost.

To get a holistic view, make sure to bundle recurring costs for the same type of expense into one line item. If you are getting billed monthly for your web server, take the 12-month average and roll that into one expense item called “Web Server Costs” instead of having 12 separate rows.

Next, add the following columns:

  • Expense Priority (Critical, High, Medium, Low)
  • Expense Nature (One-time/Ad-Hoc, Subscription/Recurring)
  • Action (Keep, Eliminate, Improve)
  • Improvement Opportunity (How can you lower the expense cost?)
  • Notes (Use this to describe ways you can lower the expense cost)
  • Sort the “Expense Item” column by Average Monthly Cost (largest to smallest) to highlight your largest dollar value expenses.

Go through each row and determine the Expense Priority: how important is it to keep the item associated with this expense? Come up with a ranking, such as critical, medium, or low.

When rating your expenses consider the following:

  • Does this expense relate to a core revenue-generating activity?
  • Does this expense relate to a mandatory activity or obligation?
  • Is it challenging to change or eliminate this expense?
  • Will there be a material impact if the expense item is removed?
  • Is this expense item difficult to replace with something less expensive but equally as good?

If the answer to all of the above is “No” then the Expense Priority is lower. Often, we may find that we are paying for several services or products that are similar in nature or where there is an overlap in the benefit. If there are expenses like these that are for the most part redundant, these would lower the Expense Priority, and can most likely be removed or replaced with a lower-cost alternative that provides the core features you need.

Next, indicate the Expense Nature: whether the expenses are one-off costs or repeat on a set schedule (e.g., rent, membership dues, monthly internet costs, etc.). Now, it’s time to determine the Action (Keep, Eliminate, Improve). For quick gains, focus on the Medium and Low priority expenses with the highest Average Monthly Costs.

As you go through the list, consider eliminating expenses for any items marked as Low Priority. For Medium Priority items, record any improvement opportunities for lowering, adjusting, or replacing costs in the Improvement Plan column.

There are a digit of ways to improve costs. Here are some examples:

  • For any physical assets or resources that you regularly purchase, consider buying in bulk
  • Negotiate better terms with your service providers and vendors—you’ll be surprised at what you can get by asking
  • Find a better deal or a lower-priced alternative on a similar product/service that satisfies the primary benefit
  • Identify any duplicative tools or services and go with the one that does the best job (cancel the rest)
  • Reach out to your network (personal and professional) and explore whether you can improve costs via a collaboration. (Can you get something on your expense item list by offering value instead of money?)

Review your monthly subscriptions and for any service/tool that you expect to use for longer than 12 months, switch to an annual discounted subscription and disable the auto-renewal

Re-assess any subscription tools you use, and replace those with non-subscription lifetime deals, like those on AppSumo.

During a recession—and in the time leading up to a recession—costs for certain things will go down and businesses will be more open to alternative arrangements. Keep an eye open for new deals. Maybe you’ll find better pricing for equipment, space, or technology. Or, perhaps you can negotiate lower rates, such as for credit card processing fees. This should be an ongoing exercise. Remember to revisit these steps as you go through the following tips.

3. Take your customer relationships to the next level and build brand loyalty

In good times and bad, your customers are the lifeblood of your business. So, it’s important to make sure your customers are happy. In fact, you need to make them even happier than before, and instill a sense of loyalty. Why? Because it’s much easier to keep your existing customers than it is to generate new business—especially if they trust and value you.

Here are some tips to strengthen your relationship with existing customers:

Be generous with gifts and rewards

In today’s world, giving your customers free stuff is expected. If you’re not doing it, your competitors are. This includes merchandise, fun swag, e-books, discounts, gift cards, and exclusive access to something special. There is no shortage of ideas, but the key is to figure out what kinds of things will be most valuable to your customers.

An easy starting point is to create an attractive e-guide, whitepaper, or infographic with curated content that is relevant and helpful for your audience. You can find top-rated professionals on Fiverr to help you with this for less than $50.  Next, offer periodic discounts and special offers on your existing products or services. To take things one step further, consider periodic giveaways, and if relevant a loyalty or rewards program.

Connect with your customers and express gratitude

Simple gestures that show customers that you care and value their business will go a long way. Without getting too intrusive, test the waters by reaching out via email and scheduling some time to speak with them. Let them see who is on the other end of the business.

If that doesn’t work, get creative. Send them an e-card, a personalized email, or even a handwritten letter (remember those?). Check out Thnks for creative ideas. Thnks has a business model centered around providing efficient, personalized, and thoughtful gestures of appreciation.

Their suggested activities include sending “grateful” notes, acknowledging special occasions (such as birthdays and relevant milestones), setting up “face time,” and also making donations on their behalf to causes they care about.

Establish a community and get your customers involved

Establish a community and get your customers involved

Getting your customers involved—with you and each other—is a surefire way of taking things to the next level. Establish a lasting emotional connection through sincere and meaningful engagement that will be remembered. Find ways to lift them up, get them recognition, and build new relationships.

Hosting interactive webinars and events is a great way to do this. It provides customers with the opportunity to ask questions and contribute to the conversation.

Having a community forum (such as a dedicated space on your website or a Facebook group) is another example. Not only does this allow you to regularly engage with your customers and reward them for their participation, but it enables community members to support each other and build relationships.

Offering interesting ways to have your customers contribute to your business is yet another method. Holding a contest, for instance, where customers can submit business ideas and get recognition is a win-win.

Make your customers part of the family and share a piece of the pie

The best way to get your customers involved with your business is by making them part of the family, and offering them “skin the game.” This means giving them the opportunity to help you promote, sell and grow. And, in return, you share the winnings with them. You can do this by setting up an affiliate program, where customers (‘the affiliates’) can get a commission for sending traffic and/or sales your way.

Another method is to identify customers who love your product and make them brand ambassadors. Brand ambassadors are advocates that help increase brand awareness and sales by creating a buzz and helping to promote. You can compensate them with free products, commissions, or other monetary arrangements.

Referral programs are also great. Generally, they work by incentivizing customers to recommend your products to their families and friends. You then reward them with discounts, store credit, free merchandise, or cash back.

Lastly, for certain customers who have a large following or audience, it might be worth exploring sponsorship opportunities. An example would be providing a customer with pre-arranged funding, resources, or services in exchange for placement in their newsletter, website, or at an event.

Provide your customers with more value

Provide your customers with more value

Providing more value to your customers can be as easy as fixing a bug, adding a new feature, or bundling/unbundling your existing services so as to provide different offers. But, you need to talk to your customers and find out what they like, what they don’t like, and what they wish they had. Then, you can prioritize your action items based on the extent of demand, ease of implementation, and respective cost of the work. In general, it helps to focus on changes that offer high value at a low cost. Any spending should have the potential to grow your customer base and increase revenue potential.

You can get valuable customer feedback through surveys, calls, emails, forums, and any other existing communication channel. If you followed the previous four tips for strengthening your customer relationships, then you already have a goldmine that you can tap into. Customers who are highly engaged and enthusiastic about your brand are much more likely to give you honest and helpful feedback.

If you want to take this one step further, you can create a website page that lists all the potential improvements and offerings you are thinking about. You can then allow visitors to “upvote” or rate what they like. This will make it easier to prioritize what to focus on. Here’s a great example from Elfsight:

4. Diversify your business offerings to align with consumer demand

Here’s a real-life business lesson that highlights the importance of examining your business offerings and keeping customers happy. John Chambers, the former CEO of Cisco, had his fair share of setbacks. This included a 30% drop in sales within a 45-day period—equivalent to a near-death experience for the company.

How did Chambers overcome the challenge? “The way we got through it was to keep our core strategy but pivot in other ways, such as putting a disciplined process behind our management structure. I also took time to reflect on how we had been talking to and working with our customers.

I was sitting behind a desk, reviewing data all day long, when I should have been out there in front of my customers more. We made the necessary shifts to make this happen and truly become a customer-first company, which allowed us to turn things around and come back out on top.”

His advice? “It’s as simple as disrupt or get disrupted. If you aren’t willing to change and evolve with the larger shifts taking place, you will get left in the dust. The key, no matter the industry, is the CEO, who has to own the transformation.

They have to ask themselves how they are going to innovate differently to lead fast rather than follow slowly. They have to be willing to disrupt themselves, their leadership, and their company.” A new revenue stream doesn’t have to mean changing your entire business model.  Rather, the idea is to look at what you already have in place and explore how you can pivot.

ASK: What can be tweaked or added while aligning with consumer needs and behavior during an economic downturn?

Having multiple sources of revenue (one that thrives when the economy is strong and one that thrives during a recession) will allow you to mitigate your risk and lock down a cash flow. See if you can spot interesting opportunities that complement what you already sell.

Here are three tips for calibrating your business offerings to perform well during a recession:

Help consumers with one of the following needs

Savings: Offer better pricing than your competitors and package your product or service in a way that allows consumers to save more money. Consider offering lifetime deals, steep discounts or complimentary access. Another effective technique is bundling or unbundling your offerings depending on what will benefit your customers. Bundling allows you to offer value for different types of customers (without creating something new) by combining multiple smaller offers into one larger offer at a lower price.

Supplemental income: Identify ways you can help consumers earn more money—either by using your products or services or by providing cash-earning opportunities such as an affiliate program, referral program, sponsorships, or similar. You can also help to educate your customers by sharing useful knowledge via a blog or other educational resources.

Emotional and mental wellbeing: Explore how you might be able to make your customers feel happy, secure, and healthy. This could be anything from entertainment to health and wellness tips to tools that will make their lives less stressful. When in doubt, ask your customers what keeps them up at night and find a creative way to make them feel better. Address their pain points.

Job opportunities: Offer tools or services that will make your customers more marketable and advance their careers. Examples include educational resources that enhance their skillset (e-learning courses, books, coaching, seminars, boot camps, masterclasses) or networking and business opportunities that open doors for them. Focus on teaching them how to do things that are valued by the market. Help empower your customers to find new or better work. Think about what they need to prepare for a recession.

Monitor the market and address changes

If you notice a shift in consumer spending towards certain activities, preferences, or habits, this is an opportunity to either increase marketing efforts in these areas or offer a new service or product. You want to go where the market is. One such example is online streaming, which we learned from COVID. As consumers were going out less, businesses adapted to provide online services (virtual workouts, zoom meetings, and Netflix took off). The idea is to notice these changes at the onset so that you can get ahead of them.

Here are some tips to stay on top of consumer trends and behavior:

  • Get customer feedback using fun and easy-to-use surveys and incentivize them to respond by using rewards—ask them point blank about any changes in their preferences and purchasing habits
  • Plug into community forums and focus groups, particularly Reddit, and even YouTube threads to see what consumers are saying
  • Monitor your own data and analytics (and set up alerts) to identify if there are material changes in your customer’s behavior—data like sales metrics, refund requests, customer support tickets, or frequently asked questions
  • Subscribe to data-driven consumer trends and behavior reports that provide relevant business statistics
  • Sign up for daily business newsletters that focus on short, “straight to the point,” breaking news and trends such as Axios and The Hustle—both of which can be read in under five minutes, and allow you to specify your preferences

Make your product indispensable

If a product can be easily substituted, then consumers may jump ship to a less expensive option during economically turbulent times.

So how do you become less replaceable?

Your customers need to feel that you fulfill a unique need or role that can’t be satisfied elsewhere.

One method of achieving this is by building brand loyalty and strengthening your existing customer relationships (discussed in tip two above). The other way is to ensure that you offer something of value that targets a specific need in a way that is different from (and better than) your competitors.

An example would be if you rolled out a new feature or tweaked an existing feature to focus on a niche or specialized benefit. The benefit would have to offer enough value to dissuade your customer from switching to a competitor. You’re essentially raising the “opportunity cost” of leaving you.

OptinMonster, a lead generation software company, does this really well. There are countless companies that offer email signup forms, but OptinMonster is really good at distinguishing itself from its competitors. Why?

Because they continually test and enhance their product to make sure they have features that are different or more advanced, such as “exit intent technology” (detecting when visitors are about to leave).

They also have a ton of features. So, when taken together, it makes it difficult to find a competing product that has the same features with the same quality.

Now, here’s what else they do well.

They spend a lot of time investing in a long-term relationship with you. They check in, they offer you gifts and if you ever try to leave them, they make it difficult to break up (💔 But, who else will be able to satisfy all your different needs? We’ve raised so many beautiful forms together. Our lives are so intertwined. Oh, and, look what I just got for you).

5. Activate a fail-safe plan to motivate and reward your top-performing team members

When businesses are considering how to prepare for a recession, it’s a natural tendency to work the strongest performers harder—particularly those who are the most loyal. Expectations are higher for top performers, and it’s easier to lean on them for support.

However, this is a slippery slope. If not managed correctly, team members can feel overworked and taken for granted. The last thing you like to do is sacrifice productivity and team morale.

The goal should be to keep your best performers happy, engaged, and excited about the future of your business.

Here are two effective tips for maintaining a high-performing team when preparing for a recession:

  • Inspire and motivate your top performers (appeal to their hearts and mind)
  • Offer valuable but cost-effective short-term incentives (appeal to their quality of life)

Inspire and motivate your top performers

Inspire and motivate your top performers

Even if you think you know your team well, it’s a good idea to reconnect with them and confirm that you understand what drives them. Don’t make assumptions. Circumstances change.

Schedule one-on-ones to find out what excites and inspires them. Ask them what their goals are and what they enjoy doing most in life. Get a pulse on what you can do to make them happier.

Compile a list of opportunities for helping your team get what’s important to them. Then, to the extent possible, find ways to incorporate these into your plan for rewarding them.

Here are 11 important considerations that top founders and CEOs point to when it comes to motivating teams:

Power: Empower them by offering autonomy, authority, and responsibility.

Recognition: Highlight their accomplishments, help them get visibility, and give them credit where it’s due. Consider spotlighting them publicly if they are comfortable with it.

Titles: Even if you can’t offer a financial promotion, title upgrades hold value. They reflect progression and can be used on resumes and social networks. Consider granting a “Team Leader” or a “Head of” title.

Growth opportunities: Position them to grow in their career. Examples include training, new skills, mobility within the company, and ongoing feedback that lets them know what they do well or where they can improve. Most importantly, challenge them. Help them break boundaries and reach their full potential.

Career visibility: Let them know what’s next. What is their path forward and how can they get there? People appreciate knowing that they are working towards something. Share that visibility.

Mission alignment: Align your company’s goals and values with your team members’ goals and values.

Respect: Show them respect by listening to them and taking action on what they say. If they make a good suggestion, do something about it and show them they have a real voice.

Gratitude: Acknowledge when they do a good job and make sure the praise is authentic and sincere.

Expectations: Communicate expectations frequently and clearly so that team members know if they are on track and can adjust course if needed. A team can’t meet expectations that aren’t explained to them. Set them up to succeed.

Lead by example: Doing what you preach is the fastest way to build morale and earn trust. If you can roll up your sleeves and dig into it with your team, it shows that you understand and value what they do. It also shows that you are part of the same team, and able to provide direction.

Positive working environment: Your team should enjoy coming to work each day. That means establishing an environment that works with their life, not against it. Examples include work-life balance, a supportive environment and delivering the resources they need to succeed.

Offer valuable (but cost-effective) short-term incentives

No matter how driven and motivated your team is, if they are not seeing compensation that is tied to their performance or effort, they may start to pull back—especially during economically challenging times.

Therefore, the second part of the equation is to more directly tie performance to rewards, and provide incentives that offer your team the opportunity to enhance their well being and quality of life.

Not only does this give them something to strive for, but the act of achieving small wins is psychologically satisfying and boosts intrinsic motivation. Even a cup of coffee can go a long way.

When it comes to picking your incentives, get creative. Think about what you can offer at a low cost, but that provides high value.

Incentives should be personalized and chosen based on what you know about your team – specifically what they value most.

Examples include: vacation days, additional job flexibility, money ($), shares in the company, free access to products or services, merchandise, certification/training programs, or cash equivalents, such as gift cards.

Consider what will save them money, get them money, improve their lives, and add to their marketability.

At a minimum, when preparing for a recession, a strong incentive plan should:

  • Offer attractive rewards with a variety of options that appeal to the broader team
  • Encourage higher performance in a fun and healthy manner
  • Include individual and team based incentives that allow for equal opportunities and inclusivity
  • Allow for short-term and more frequent distributions
  • Present different opportunities and paths for realizing the rewards
  • Be well-defined and clearly communicated
  • Support the company by being cost-effective, practical, and relatively easy to implement
  • Align with company goals and help drive growth and revenue potential
  • Here are three examples of high-value short-term incentive structures:

Target driven rewards: Rewarding team members for specific accomplishments, such as completing a project or meeting a defined goal, is highly effective. The key here is to determine important milestones that contribute to the growth of the business.

Unlike an end-of-year bonus, target-driven rewards are tied to smaller and quicker achievements and can be realized sooner. The risk of disappointed team members is lower because the payout formula is more straightforward and there is less waiting around. Frequent and more achievable rewards are effective in keeping morale high. They also provide businesses the opportunity to deliver on their promises sooner.

There are software tools, such as Pryze, which make it easy to reward team members for doing things that benefit the bottom line.

Consider providing rewards at both the individual level and at the team level to provide equal opportunities for everyone to benefit.

Commission-based rewards: For roles that directly attract revenue, one of the most effective methods of rewarding performance is to share a percentage of the winnings with the team or individual that helped to get it.

If this is already in place, consider re-evaluating the percentages that are being offered so that team members are incentivized to bring in more money.

This is a win-win arrangement. If there is an opportunity to make the payouts more frequent and slightly higher based on how much revenue is generated, this would be a good time to do that.

Points-based rewards: Setting up a points-based reward system where team members can accumulate and redeem points for specified rewards is great for more general actions, tasks or activities that you want to encourage. Not only is it fun and personally satisfying, but it can work for just about any role.

The other benefit is that you can design it to allow team members to recognize and praise each other by assigning, sharing or nominating points.

A recession doesn’t have to stall your business

A recession doesn’t have to stall your business

In the words of marketing guru and entrepreneur, Neil Patel, from his book Hustle:

  •  “Where most people see fear and pain, hustlers see opportunity.”
  • This applies nicely when thinking about how to prepare for a recession.
  • It serves as a reminder that even in the worst of conditions, there is a silver lining. Rather than being fearful, you can be proactive and develop a plan to get ahead of the worst-case scenario.
  • The sooner you start, the better prepared you will be.
  • You can start today by reallocating your resources and diversifying your business model so that you have a lean business that can withstand fluctuations in the market.

Consider these five strategies to kick things off:

  • Simplify your business model and double down on what’s working
  • Assess your spending and improve your cost structure
  • Elevate your customer relationships to the next level and build brand loyalty
  • Diversify your business offerings to align with consumer demand
  • Activate a fail-safe plan to motivate and reward your top-performing team members



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